The year 2011 has come with a string of tragedies in terms of bad weather in various parts of the United States. One of the more recent catastrophes was Hurricane Irene. The Hurricane caused havoc all up and down the East Coast including Philadelphia and Delaware. Many victims of this disaster are still coming to terms with what happened and counting their losses.
For those of you who lost property in this disaster, they may be some federal aid in terms of tax relief available to help you in your recovery. The tax code provides for tax relief for people who have incurred losses in sudden tragedies. The Casualty, Disaster, and Theft deduction allows for taxpayers to deduct the losses that they sustain from sudden events such as hurricanes, volcanic eruptions, car accidents, floods, storms, fires, tornadoes, and even terrorist activity. Various rules apply for this tax relief. Some of the conditions for claiming the relief are explained below:
Determining Value of Loss
The only losses that you can claim are those relating to the disaster or to a sudden and unprecedented event. Therefore, you will need to determine the specific damage that has been caused by Hurricane Irene. Once you do this, you will then need to value the loss so as to make the necessary claim. To do this, you will need to determine the Fair Market Value (FMV) of the property both before and after the hurricane. If the property was partially destroyed, you will claim the lower of the adjusted valuation basis of the property and the loss in market value. If property was insured, you can only claim a tax deductible loss after subtracting any proceeds received from the insurance company. If you get any money from the sale of salvage, this too needs to be deducted from the amount that you will be claiming.
If the value of the loss exceeds your taxable income, then you will have a net operating loss similar to that of businesses. You can use this loss against future taxable incomes.
When to Claim the Tax Relief
The claim for the losses incurred can only be done of the same year of the disaster. However, if the losses incurred were in Federally-declared disaster areas, you can make claims in the year preceding the event. In this case, those who are living in the Federally-declared disaster area can claim the losses in their 2010 tax returns. To do this, they will need to file an amended tax return (IRS Form 1040X) to make adjustments for the claim. The rest of the taxpayers who are not living in these disaster declared areas will need to wait until the 2011 tax season in early 2012 to make the claim. The areas that are marked as Federal disaster regions can be found on the fema.gov website.
How to Claim the Relief
To make a tax deduction claim on your Hurricane Irene losses, you will need to file IRS Form 4684, “Casualty and Theft” and attach it to your tax returns or your amended returns. You will then need to deduct the losses on Schedule A of the tax return Form 1040. To claim the disaster loss, you will need to itemize your deductions as opposed to taking the standard deduction. The standard deductions for 2011 are $5,800.00 for singles, $8,500.00 for heads of household, and $11,600.00 for couples that file jointly. Therefore, if the amount of your loss is lower than these standard deductions, you may not need to make a claim.
If you choose to itemize and claim the loss, you will need to first, subtract $100.00 from the loss to claim and then deduct a further 10% of your Adjusted Gross Income (AGI).